Why I Lost My Secretary:

Over the past two decades, endowments have become an increasingly important component of the typical university’s resource base. We examine how U.S. doctoral institutions’ endowment payout policies and spending decisions are affected by financial market shocks to endowments. While most endowments have formal payout policies intended to smooth payouts over time, we find that universities are more likely to deviate from these policies following negative (but not positive) shocks. These negative shocks have important economic effects on university activities. Specifically, we find that universities with larger negative endowment shocks are relatively more likely to: (1) reduce support (e.g., secretaries) and maintenance staff, but not administrators; (2) among less selective institutions, reduce expenditures on tenuresystem faculty while increasing the average salary of adjuncts/lecturers; (3) make larger cuts to tenure-system faculty and secretarial support when their endowment portfolio is less liquid (i.e. higher allocations to alternative assets such as hedge funds); and (4) among more selective universities, reduce financial aid for students the following Fall and enroll fewer freshmen. We also find that universities increase hiring when their peers experience negative endowment shocks. Thus, financial shocks have real effects on university operations, but with crosssectional variation in how universities respond. Acknowledgements: We are grateful to seminar participants at Chinese University of Hong Kong, City University of Hong Kong, ISCTE Business School Conference, NBER Summer Institute, Stockholm School of Economics, University of Hong Kong, University of Illinois, University of Iowa, and the Vienna Endowment Workshop and Warren Bailey, Bo Becker, Dan Bergstresser, Lauren Cohen, Elroy Dimson, Ron Ehrenberg, Vidhan Goyal, Harrison Hong, Caroline Hoxby, Leigh Linden, Jim Poterba, Dorothy Robinson, Rik Sen, Michael Smith, Laura Starks, David Swensen, Jay Wang, Mike Weisbach, and Josef Zechner for useful comments and suggestions. We also thank Ken Redd of NACUBO and John Griswold of the Commonfund for assistance with data and helpful discussions. Andrew Edgar and Jia Xing provided excellent research assistance. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.